• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

ACCA Webinars: How to earn marks in Strategic Professional Exams. Learn more >>

20% off BPP Books for ACCA & CIMA exams - Get BPP Discount Code >>

Provision

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Provision

  • This topic has 2 replies, 3 voices, and was last updated 9 months ago by P2-D2.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • October 31, 2021 at 8:14 am #639535
    catherineykf
    • Topics: 1
    • Replies: 0
    • ☆

    My question quoted from BPP Practice & Revision Kit as below:-
    In five years’ time Rainbird Co will have to dismantle its factory and return the site to the local authority. A provision was set up for the present value of the dismantling costs when the factory was first acquired. The opening balance on the provision at 1 Jan 20X1 was $2.63 million Rainbird Co has a cost of capital of 8%.

    The kit asks me “What is the amount of the provision that should be carried forward at 31 Dec 20X1 for the dismantling of the factory?

    I would like to know why the calculation is $2,630,000 * 108% = $2,840,000 instead of $2,630,000 *1/1.08 = $2,435,185?

    November 7, 2021 at 8:49 am #640114
    nkasiobi
    • Topics: 1
    • Replies: 5
    • ☆

    Hello Catherine,
    So the question shows that the provision was made 5years prior to the dismantling happening thus the figure 2.63m given at Jan 1 20×1 is a discounted figure from the main expense due in 5 years time.

    Every PV is usually lower than the main value and as the year passes, that value increases (compound interest) until it matches the main value in the estimated year thus the 2,630,000 should now be multiplied by the cost of capital to get the interest accrued on the previous PV which added together will give the new value at Dec 31, 20X1 (it’s compounded ie compound interest) which is 1 year later. So 2,630,000 x1.08 = 2,840,400.

    Remember,the present value of the final cost is supposed to increase as the year inches towards the estimated number of years.

    November 7, 2021 at 9:24 am #640138
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6158
    • ☆☆☆☆☆

    Does this answer your question, Catherine? If not then let me know.

    Thanks

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

ACCA Introducing professional skills into the Options exams

ACCA Professional Skills Webinar – Register now

Donate

If you have benefited from OpenTuition please donate.

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • Wasfi on FA Chapter 23 Questions Group Accounts The Consolidated Statement of Financial Position (2)
  • Chukwuedo2505 on Double Entry Bookkeeping (part b) – ACCA Financial Accounting (FA) lectures
  • mannannagpal on MA Chapter 5 Questions Ordering and Accounting for Inventory
  • mannannagpal on MA Chapter 5 Questions Ordering and Accounting for Inventory
  • mbarrie on FA Chapter 4 Questions Accruals and Prepayments

Copyright © 2022 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy